Notes to the consolidated over an indefinite number of future periods Financial assets are initially recognised
financial statements due to the stability of the US insurance
market. The licenses are tested annually
at fair value. Subsequent to initial
recognition financial assets are measured
continued for impairment, and any accumulated as described below.
impairment losses recognised are deducted
from the historical cost amount to produce Financial assets are de-recognised when the
2 Significant accounting policies continued the net balance sheet carrying amount. right to receive cash flows from them expires
This assumption is reviewed annually or where they have been transferred and
2.6 Intangible assets to determine whether the asset continues the Group has also transferred substantially
(a) Goodwill to have an indefinite life. all risks and rewards of ownership.
Goodwill represents amounts arising on
acquisition of subsidiaries and associates. (d) Rights to customer contractual Fair value for securities quoted in active
In respect of acquisitions that have occurred relationships markets is the bid price exclusive of
since 1 January 2004, goodwill represents Costs directly attributable to securing the transaction costs. For instruments where
the excess of the fair value of consideration intangible rights to customer contractual no active market exists, fair value is
of an acquisition over the fair value of the relationships are recognised as an intangible determined by referring to recent transactions
Group’s share of the net identifiable assets asset where they can be identified separately and other valuation factors including the
and contingent liabilities assumed of the and measured reliably and it is probable that discounted value of expected future cash
acquired subsidiary or associate at the they will be recovered by directly related flows. Fair value changes are recognised
acquisition date. future profits. These costs are amortised on immediately within the investment result
a straight-line basis over the useful economic line in the income statement. An analysis of
In respect of acquisitions prior to this date, life which is deemed to be 20 years and are fair values of financial instruments and further
goodwill is included on the basis of its carried at cost less accumulated amortisation details as to how they are measured are
deemed cost, which represents the amount and impairment losses. provided in note 22.
recorded under previous generally accepted
accounting principles. (e) Computer software (a) Financial assets at fair value through
Acquired computer software licences are profit or loss
Goodwill on acquisition of subsidiaries capitalised on the basis of the costs incurred A financial asset is classified into this
is included in intangible assets. Goodwill to acquire and bring into use the specific category at inception if it is managed and
on acquisition of associates is included software. These costs are amortised over the evaluated on a fair value basis in accordance
in investments in associates. Goodwill is expected useful life of the software of between with documented strategy, if acquired
not amortised but is tested at least annually three and five years on a straight-line basis. principally for the purpose of selling in the
for impairment and carried at cost less short-term, or if it forms part of a portfolio
accumulated impairment losses. Internally developed computer software of financial assets in which there is evidence
is only capitalised when it is probable that of short-term profit taking.
The impairment review process examines the expected future economic benefits that
whether or not the carrying value of the are attributable to the asset will flow to the (b) Loans and receivables
goodwill attributable to individual cash Group and the cost of the asset can be Loans and receivables are non-derivative
generating units exceeds its recoverable measured reliably. Amortisation of internally financial assets with fixed or determinable
amount. Any excess of goodwill over the developed computer software begins payments that are not quoted on an active
recoverable amount arising from the review when the software is available for use and market. Receivables arising from insurance
process indicates impairment. Gains and is allocated on a straight-line basis over the contracts are included in this category and
losses on the disposal of an entity include expected useful life of the asset. The useful are reviewed for impairment as part of the
the carrying amount of goodwill relating life of the asset is reviewed annually and, impairment review of loans and receivables.
to the entity sold. if different from previous estimates, is Loans and receivables are carried
changed accordingly with the change being at amortised cost less any provision
(b) Syndicate capacity accounted for as a change in accounting for impairment in value.
The cost of purchasing the Group’s estimates in accordance with IAS 8.
participation in the Lloyd’s insurance 2.8 Cash and cash equivalents
syndicates is not amortised but is tested 2.7 Financial assets including loans The Group has classified cash deposits
annually for impairment and is carried at and receivables and short-term highly liquid investments
cost less accumulated impairment losses. The Group has classified financial assets as cash and cash equivalents. These assets
Having considered the future prospects as a) financial assets designated at fair are readily convertible into known amounts
of the London insurance market, the Board value through profit or loss, and b) loans of cash and are subject to inconsequential
believes that the Group’s ownership of and receivables. Management determines changes in value. Cash equivalents are
syndicate capacity will provide economic the classification of its financial investments financial investments with less than three
benefits over an indefinite number of at initial recognition. The decision by the months to maturity at the date of acquisition.
future periods. This assumption is reviewed Group to designate all financial investments,
annually to determine whether the asset comprising debt and fixed income 2.9 Impairment of assets
continues to have an indefinite life. securities, equities and shares in unit trusts Assets that have an indefinite useful life are
and deposits with credit institutions, at not subject to amortisation and are tested
(c) State authorisation licences fair value through profit or loss reflects annually or whenever there is an indication
State authorisation licences acquired the fact that the investment portfolios are of impairment. Assets that are subject
in business combinations are recognised managed, and their performance evaluated, to amortisation are reviewed for impairment
initially at their fair value. The asset is not on a fair value basis. Regular way purchases whenever events or changes in
amortised, as the Board considers that and sales of investments are accounted circumstances indicate that the carrying
economic benefits will accrue to the Group for at the date of trade. amount may not be recoverable.
58 Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2012